Calling It Quits: Dealing With a Disloyal Employee

Imagine: An employee leaves and sets up shop, using your documents, your
methods, your ideas and worse yet, your customers. Maybe it is not hard
to imagine. Maybe it has happened to you. Many business owners feel that
they need to have an employment contract or a non-compete agreement to
rein in employees who strike out on their own. While contractual protections
are great, they are not the only legal weapons in an employer’s
arsenal. As an employer, you are owed certain legal duties from your employees
that the law provides. When an employee breaks those duties, that person
can be sued for damages, or even enjoined (restrained by the court) to
protect you and your business.

Duty of Loyalty

The law imposes upon most all employees a duty of loyalty. This means that
an employee cannot compete against you while on your payroll. Unfortunately,
this happens often. The employee quietly builds his own business while
enjoying the steady paycheck that you provide. Once his new venture is
up and running, the employee hops from one safe lily pad (your business)
to the other safe lily pad (his new business—and your new competitor).
Even worse, the employee may be soliciting your customers and clients
to come on board with him while he or she is still employed with you.
While the employee is supposed to be working for you, the employee is
really working for himself.

Timing Is Everything

It is important to note that the employee may be in the clear, and therefore
not liable for any wrongdoing, depending on when he or she began building
the business. The law allows for an employee to take certain preliminary
steps in beginning the new venture while still being under your employ.
This means the employee can move forward with the beginning stages in
forming a business, such as obtaining a business license, filing documents with the State,
or procuring a location. An employee cannot, however, start hustling his
or her own work by making phone calls, contacting clients, or actually
doing work, while under your employ.

Depending on how the employee goes about setting up business, he or she
can be subject to a number of claims in a lawsuit. For instance, if the
employee makes untrue statements that are disparaging about you or your
business, he or she can be sued for defamation. If the employee combined
with others for the purpose of damaging your company, they can be held
liable under the Virginia Business Conspiracy Act, subjecting them to
additional damages and attorneys’ fees. If the employee used a computer
to download your forms or documents to help start this new company, he
or she can be sued under the Virginia Computer Crimes Act and can also
be held liable for conversion (i.e., civil theft).

Employees who strike out on their own should be forewarned. How one goes
about leaving his current employer and setting up a new business can be
tricky. And, as said above, timing is everything. Likewise, employers
should know that they have several arrows in their quiver when an employee
goes rogue and leaves a path of destruction in his or her wake.

The information on this website is for general information purposes only.
Nothing on this site should be taken as legal advice for any individual
case or situation. This information is not intended to create, and receipt
or viewing does not constitute, an attorney-client relationship.